Speaking during the anti-money laundering seminar organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos, he said such approach would allow resources to be allocated in the most efficient ways in accordance with priorities so that the greatest risks receive the highest attention.

He said the alternative approaches are that resources are either applied evenly, so that all financial institutions, customers, products, among others receive equal attention, or that resources are targeted, but on the basis of factors other than the risk assessed.

He said adopting a risk-based approach implies the adoption of a risk management process for dealing with money laundering and terrorist financing, he said.

“This process encompasses recognising the existence of the risk(s), undertaking an assessment of the risk(s) and developing strategies to manage and mitigate the identified risks,” he said.

Abolo said a risk analysis must be performed to determine where the money laundering and terrorist financing risks are the greatest.

“Countries will need to identify the main vulnerabilities and address them accordingly. Institutions will need to identify higher risk customers, products and services, including delivery channels, and geographical locations. These are not static assessments. They will change over time, depending on how circumstances develop, and how threats evolve,” he said.

He said the strategies to manage and mitigate the identified money laundering and terrorist financing risks in financial institutions are typically aimed at preventing the activity from occurring through a mixture of deterrence, detection, and record-keeping so as to facilitate investigations.

“Proportionate procedures should be designed based on assessed risk. Higher risk areas should be subject to enhanced procedures: for the financial services sector, this would include measures such as enhanced customer due diligence checks and enhanced transaction monitoring. It also follows that in instances where risks are low, simplified or reduced controls may be applied.

“There are no universally accepted methodologies that prescribe the nature and extent of a risk-based approach. However, an effective risk-based approach does involve identifying and categorising money laundering risks and establishing reasonable controls based on risks identified,” he said.

He said a risk-based approach is not necessarily an easy option, and there may be barriers to overcome when implementing the necessary measures.

“Some challenges may be inherent to the use of the risk-based approach. Others may stem from the difficulties in making the transition to a risk-based system. A number of challenges, however, can also be seen as offering opportunities to implement a more effective system. The risk-based approach is challenging to both public and private sector entities. Such an approach requires resources and expertise to gather and interpret information on risks, both at the country and institutional levels, to develop procedures and systems and to train personnel,” he said.

He advised that sound and well-trained judgment be exercised in the implementation within the institution and its subcomponents of such procedures, and systems. It will certainly lead to a greater diversity in practice which should lead to innovations and improved compliance.

“Implementing a risk-based approach requires that financial institutions have a good understanding of the risks and are able to exercise sound judgment. This requires the building of expertise within financial institutions, including for example, through training, recruitment, taking professional advice and ‘learning by doing’. The process will always benefit from information sharing by competent authorities. The provision of good practice guidance is also valuable,” he said.